should we have standing Stoploss orders?

If your opponent knows your surrender point, he will exploit it. 

Stoploss points, therefore, should be in mind, not in system IMHO, unless you're scalping or there is some other compelling argument. 

They can see it!

Even otherwise, sudden moves are known to open jump stop losses

my simple trading strategy with sma

assume there are 4 chart timelines

1) 1 min chart= grandchild

2) 5 min chart = child

3) 15 min chart = father

4) 30 min chart = grandfather

buy on the basis of child chart, when price cuts sma 50 from below IF price is above sma 15 in father chart. with stop loss as the points when price cuts child or father chart respective sma mentioned above.

similarly, you can make strategy for short trades.

this strategy is for short term trading.

i know of some retired para commandos who can tackle any hound with bare hands and any big cat with just one stick. similarly, i also know some traders who trade with just sticks of sma....the simple the strategy, the better.... complexity confuses

standard disclosure : no responsibility of the outcome. pl consult certified financial advisor before trading. always trade small which you can afford to lose without losing sleep. trader discretion advised

stop loss vs stop profit

if we have the habit of not having Stop Losses (SL), why do we  have habit of taking Stop Profits (SP)....we should be indisciplined both sides...

that's one of the key reasons why even traders with 50% success rate end up losing 90% money

unfortunately, fear works both side....instead of fear on the loss side, and greed on the long side....

ironically, traders have fear on profit side and greed on loss side...

trading is 90% psychology and risk control

risk control = the warrior who knows he can't die can fight much better and win more frequently....self talk

in how many directions can stock market go?

theoretically there are 10

- north

- south

- east

- west

- northeast

- southeast

- northwest

- southwest

- into the screen

- out of the screen (to hit you!)

but in practice, it has only two directions to its disposal

either north or south...rest all are trader's fears induced by market fluctuations and bluffs.

every trader has 50% straight chance of making profit (1/2)

versus 2.7% in roulette (1/35)

it is understandable why roulette casino players are losing 97.3%, but what is the reason behind 80-90% loss of a stock market traders?

it is... fiddling

...due to fear of loss, pressure of bet size... 

if any trader was to trade without applying mind, with all parameters fixed, then he/she is likely to win 50% in the long run... things start slipping below 50% when that dumb trader tries to be smart on emotions instead of logic or system. market induced emotions as well as self-inflicted emotions.

market forces have no power to beat the trader except emotions... be it through sharp move or bluff or both...

most traders can't stand the loss (because of bet size, and lack of logic of trade, defined entry exits) and hence lose frequently. 

decide, on the basis of your trading system where the market or stock is going to go, as per what timeline, take bet size which you can afford to lose if all goes wrong (which wont go wrong that often as system improves), decide a stoploss (which should be the point where the logic behind your trade would seem to no longer hold), and take the trade.... after that, expect market to do all kind of bluffs and hold your trade tight (ofcourse till your stoploss definition above)... 

only logic-based system with some edge can take you above 50% chance of profit... all the way upto 60-70-80%...or more... (the higher you go, the more challenging it is)

most of the times, if not always, markets and stocks go in the direction they are pre-decided to go (on various timelines).

once you take a trade, exit only if your target comes or stop loss is hit, don't touch it in any other condition. 

example = suppose you decide to take a long trade when price cuts sma 34 from below (say)(after closing candle), then one possible logical SL will be when price cuts it from above (after closing candle). 

similarly, if you take a long trade if rsi has given a bullish divergence, then u hold the trade till bullish divergence doesn't melt away, whatever the price... till bullish divergence is there, long trade is valid. 

price SL is risky because it is visible to everyone and is very basic logic. also, because some vibration in price is bound to happen.

--

we should not add to positions ever once trade is initiated. when we add position, it should be considered a totally new trade depending upon setup at that time

in most cases, trade goes your way within "short time" of your taking the trade. you can "feel" it. you can also feel and tell if it isn't going your way,....of course, you still need to stick to SL, but your gut feeling tells you that you perhaps have entered a bit too soon, even before proper signal.

if your SL is hit once or twice despite system, it is ok. but more than that it is a signal that you tweak your system. 

SL needs calibration

trend is like a hand pump (& other musings)

 A trend is like a hand pump. It gives you opportunities again and again for profit to keep coming out from the other side.

-

if we enter on price logic, we should exit on price, if we enter on rsi bullish divergence we should quit if that BD structure is destroyed.

-

In bull runs, pullbacks are like stretched pressed springs.

-

Technicals are not dumb. We are hard of hearing. Markets and operators tease us by speaking out the secrets in technicals...we refuse to learn the new language beyond the slangs.

-

Corrections are pillars for higher stories of the bull buildings.

-

2 to 3 technical indicators are enough IMHO. But don't do friendship with them. Marry them. Surrender your life....(Whatever indicates is an indicator... dance in sync and you know what it is saying)

correct way to decide a Stop Loss (& the logic behind 80/20 movement of price)

Stop Loss (SL) is more of a mere statutory requirement especially if conviction is sky high and risk managed eg by trade size. 

a crucial fact about SL is that a trader can't put price-SL if trade taken on pattern of technicals instead of price. SL is to be decided on the same criteria which is used to decide the trade.

--

many traders either miss out or wonder why markets move 80 percent in 20 percent time and why they languish for the remaining 80 percent time.

IMHO, besides the tactical dodge critical part, another key reason is that operators take that much of time to get the sheep on or off the train...

--

the judgement of direction and patience are key signs of a non-bad trader...

how to decide stop loss

i am always surprised to see the whole world decide trade on the basis of mango and stop loss on the basis of grapes.

stop loss should be in the same currency in which the trade was taken.

i.e. if a bullish trade was taken based on a signal from bullish divergence of rsi, then stop loss of that trade should be the point when that bullish divergence is threatened or no more valid.

similarly, if a trade is taken on the basis of a pattern, then stop loss is that level where that pattern no more holds good.

to take another example, a trade taken on the basis of nifty level should have a stop loss where that level is broken.

taking stop loss on the basis of nifty level while taking the trade on the basis of a technical indicator or level is wrong, imo.

also, tick size on the chart should be considered before deciding whether the stop loss is taken or still stands. e.g. if u r monitoring a chart with 5 min tick size, u shouldn't take the SL as hit till the chart marking after that 5min window is actually beyond that SL. that much of risk is to be taken, technically.

there is a good chance that if the stop loss is say 8180 spot on a 5 min chart, nifty may go down till 8168 (say) and jump back to above 8180 before that 5min window.

the stoploss reward

: defending your positional trade can actually reward you monetarily!!!

: lemme explain

: for every positional trade cmp (current market price), there is a corresponding higher or lower level (depending upon whether u r long or short) beyond which the trade is likely to be assumed as having run into trouble....even if for short term........

: in other words, there is always a level at a distance from cmp, beyond which the trend can atleast be safely taken as paused, if not jeopardized.....

: such 75-100 point nifty trades are not uncommon sight!!!

: if we look at this in a slightly different way.....those are the levels beyond which the price may go temporarily but substantially enough to either safeguard the profits already swept or those that can be made by taking a crisp short-term anti-trend trade....

: stoploss is not always to stop "loss" but also to "protect" loss or "make" money

: stoploss levels should be called trade reversal levels or stop trade levels also depending upon the usage....

: this is the reason i say that defending your positional may be necessary not only to protect profits, but also to make some more!!!

fighting stop-losses!

: Don't fight with every stop loss on the way.....just the one or two strategic ones....Self talk

: lemme explain what i meant by this amusing off-the-cuff remark.......which i consider not unimportant...

: first....i said it primarily for positional trades pov

: lemme explain this with an example...

: as per my existing method, bearish (positional) trade was signalled around 8600spot....

: i have experienced that the biggest danger to a positional trade is at the start....

: there is, generally, a danger of back to back trend reversal signals.......there is a real danger of the trend trigger turning out to be a false one...a hoax.....

: but, in most of the (non ranging) times, this signal (or set of signals) have turned out to be right....

: assuming that the signal was right and the market, after a little bit of tantrum falls 75-100 points thereby ensuring that the trend is here for real.....you and your trade is out of danger.....

: assume that by now the market has slipped from 8600 to 8525approx (say)....

: since at every level of the market there is a practical/strategic stoploss, like there was at 8600 level, so there must also be a practical/strategic stoploss near 8525 also to defend the bearish trade which has already been confirmed as started...

: now this 8525 level stoploss will also demand a dog fight / dodge fight.....just like the 8600level or any other.....

: all i mean is that this 8525 level stoploss, though equally challenging and stressful and threatening, is not as scary as the one at the start of the trend....

: ur trade is already 75 points in the green and u can afford some inadvertent inaccuracy or hard luck in setting the trade stoploss......

: once a trend is confirmed green and well into the green, the pressure and anxiety in the cpu of the trader is and should be drastically down....he should relax and be more courageous....

: That's why I said "Don't fight with every stop loss on the way.....just the one or two strategic ones...."

why i don't use a stoploss now!

http://thebestbusinessintheworld.blogspot.in/2010/01/u-cant-be-winner-in-stock-market.html

this is an article i wrote 3 years ago.

i opened it again after all this time and was amused to read it. so i thought why not update it with my present views on the topic.

= i no longer use stoploss. i trade only in options which have inbuilt stoploss. i trade only intraday or very short-term and only in nifty options. i trade only with well-developed method. i used my head to create the method. now, i no longer use the head. i just let that method do the trading for me. my emotions have gone almost out of some window. i just use my head in the evening (no every evening) only to fine tune the method. i am not afraid of the adverse unexpected unforeseen move. reasons? probably one reason is that such instances happen very less. second, i have developed the confiection that i select trades after sufficient homework of technique and tactic that it would be hard to lose if i stayed stable in case of adverse move. thirdly, i have programmed myself to take advantage of the bluff or adverse move of the market instead of panic. one reason that allows me this luxury is that i put in money in steps. i never put all my money on the table. i have sufficient backup buffer funds. 

trading has become boring and hence profitable for me.

i no longer use stoploss. but it is so hard for me to advocate not ot use it to others. because somewhere deep, i know that stoploss is a devil created by the devil which doesn't want you to stop fearing. and ofcourse, fear you will, if light of knowhow and experience is not with you.

Js

booking profit and trailing stoploss

i have this standard profit booking rule for intraday or overnight nifty trades with in-the-money options:

one third lots booking@25 points,

one third lots @40 points

and balance flexible.

once a target is crossed, previous target becomes trailing stop loss for the balance lots.

trailing stop loss for balance lots after crossing first target is the entry point.

similar situation, different decision

http://www.mudraa.com/trading/143227/0/btst-30july-js.html

dear murliji,

thanks for asking and sound like the echo of my self talk.

1. why i terminated both calls of yday in 10-15 points

= there was a strong "undercurrent" signals for slide down. so i took the intraday downward position. but as is often possible near sma 34 lines, those strong signals are bulldozed. for 1-2 hours, it seemed that the upward movement was a bluff. so while i let the first short position drift without sl, at sufficient high intraday position, i gave my shorts a second shot but this time with stop loss. i went for a stoploss for 2 reasons - a)second trade was more in-the-money and costlier, b)if the market was to still continue to drift up (as it eventually did), i didn't need longer signal to accept that the "undercurrent" was false and an upward rally was in store. therefore, the second short trade was with a tight (but well thought of) 10 point one. the first one was costlier @ 15

2. why i let today's trade ride the roller coster

= yesterday's bulldozing of "short" signal was enough signal of an upward rally. so i had little doubt of going long for overnight. 1% asian market buoyancy in morning hinted that i was right. but the rbi policy was a factor that stood in-between. besides the overnight bullish hints, there were enough signals in the morning that hinted that upward movement was inevitable. i was jittery to see the markets dip in the pre-lunch session, but frankly, i was not surprised. i rechecked the signals and saw buoyant forces again. and i was sure that operators / market forces couldn't bulldoze opposite side signals on consecutive days. plus there were 1-2 more reasons. by now, it was obvious that market forces had used rbi news to play the intraday game. buying and adding to the long positions at the intraday lows was an excellent idea (which i decided against, for some reasons).

i checked signals again after 3 and saw clear btst invitation.

so while squaring yday trades was the acceptance of the limit of adverse trade setup, not squaring today's intraday adverse trade was a tough put-my-foot-down deliberate decision to stick to my understanding.

and all this time, i was almost ready with the backup plan. 

key to profit lies in the heap of losses!

many of you
must have been in stock market
since many years.

if i ask you point blank
"what would be the rough total of your winning trades?"
what figure would you give?

and then if i asked you
"what would be the rough total of your losing trades?"
what figure would you give?

chances are
that the sum total of the profitable trades will not be zero.
some decent figure would be there.

and the sum total of the losing trades will be huge
much more than the sum total of the winning trades.

and what would be the net total
(after combining the two figures).

again the chances are
that you would have slipped non stop
in all these years!

well, what's my point?

its plain and simple.

the above facts contain
two part-solution to your problem.

first,
if you were to only reduce and minimize your losing trade frequency and size
especially the size,
your balance sheet will dramatically improve!
who knows, by now, you might have been only marginally in the red, if not in the green,
with a treasure of experience as the base for the final flight!!!

as dr. brett steernbarger says
"If there is a holy grail to successful trading, it probably is risk management."

and now
the part-two of the solution-

why and when did you book the profit
of your few profitable trades?

was it fear of losing the profit
or was it a clear red signal to the rally?

again, chances are
you have a habit of
blinking first!

the cause of fear of losing the profit
like the cause of any other fear
is
darkness
and excitement.

darkness caused by absence of a method
and excitement caused by desperation.

think about it!

secret of day trading success

which of the following trading scenario would you prefer
A. (total 375 points profit in 7 trades) + (total 95 points loss in 8 trades)
B. (280 points profit in 7 trades with no loss)
(*brokerage adjusted profit and loss)
well, on the face of it
both the above scenario look same.
rather, scenario B looks better than scenario A which looks scary!
but, the reality is
that
1. scenario B is just a mirage....it doesn;t happen pratically.
2. scenario A is not only practical but is the best way to be successful in trading.
3. even scenario A doesn't happen
instead scenario C happens as below
C.  (total 175 points profit in 7 trades) + (total 375 points loss in 8 trades)
why?
cutting winning trades early
and cutting losing trades late!
------------------------------------------------------
there is nothing called opportunity without risk.
and where risk is there, there has to be loss.
"cutting loss early, letting profit go on till max possible and trying to increase percentage winner trades"
is the secret of trading success.
------------------------------------------------------

in the above example (scenario A) which is close to reality, you will notice that trade success ratio isless than 50% but the net result is good! this fact speaks volumes. traders are so scared of loss as well as losing trades that they miss the real thing....the net profit!

same thing happens in life. we are so obsessed with the hardships and troubles that we miss the real things.........!!! 

(niftyshots.blogspot.com)

self talk

i generally try to take and share trades with stoploss of 10-15 points.
like the last one where the stoploss is just 11 points away.
if one trades in nifty futures and trades with 1 lot (say), then the max risk in a 11 point SL is of 550 rupees. add another 150 rupees as brokerage (majority brokers charge less), this adds up to 700 rupees.
if the trade goes in the desired direction and gives a profit of 30 (say) points, the benefit amounts to 30x50=1500 rupees. minus brokerage of 150, it comes to 1350 rupees.
if one trades with mini-nifty, all this gets reduced proporationately.
if one can't take this much of risk with this much of potential for profit, one should not consider taking up trading. instead he or she can opt for occasionally buying lottery ticket.
otherwise, it can be a pretty decent self-employment.

only 3 conditions : a) i am assuming that the trader has got basic trading skills, b) he ruthlessly and strictly uses stop loss preferably using bid option, so that no time is wasted if SL is hit, c) re-enter the trade if price crosses back the SL (preferably in the same session).

the only game spoiler can be = a sudden sharp move that jumps the stop loss bid range.

this may happen occasionally. this is stock market - a semi-war zone!
this is why it is so important that we lose small and profit max possible - to build a buffer for such occasions.
trading is simple but not simplistic! 


(niftyshots.blogspot.com)

no gains, without (the right type of) pains

risk can't be separated from trading.
a trader must accept this fact.
once you accept this, it will be prudent to understand that there are four choices of trading risk you can take
1. small risk taken, small gain booked
2. small risk taken, maximum gain booked
3. large risk allowed, small gain booked
4. large risk allowed, large gain expected.
while type 4 risk remains a dream, rather a nightmare,
type 3 risk is what amateurs do on the way to becoming pro's (provided they survive)
type 2 risk taker is a pro
and type 1 risk is the sign of a maturing amateur.

(niftyshots.blogspot.com)

my views on stop-loss

below, i share my notes about "stop loss".

- any trade is based on probability and not on certainty. so there is always a chance of the
trade not going the intended way. (however, better the trade anticipation theory, higher the
percentage of trades going the intended way)

- stop loss is not a irritant, it is not a necessary evil as well. it is, infact, the most potent
profit yielding tactical tool. you can take any promising trade with intelligently decided
stoploss. without stoploss, all trades are risky and with it, no trade is risky. since risk is a
perception, it is linked to fear. and fear kills more traders than loss. fear cripples your
ability to react to adverse market moves. stop loss is like the rope in the neck of a fierce
hound tied to a pole and threatening you. with that stop loss rope, u r always safe from that big
bite. stop loss is a safety assurance which invites you to take any trade. just as they say that
courage is the fear whose prayer has been said, profit is a trade whose homework has been done
and stop loss cleverly decided.

-personally, i don't use the word "stoploss", i call it "stop chase". this nick name is based on
the reason and logic behind my definition and usage of the stop loss. here is it = i take a trade
on the basis of a formation/indication. just at the time of entering the trade, i decide as to
what will be the point where the formation/indication to take the trade can be considered as
having been destroyed/disturbed/spoiled/over. that point i take as the stop loss (in my language
= "stop chase"). why stop the chase? because there is no point chasing when you realise that the
chase was false!!!

- one more thing, if the stoploss (or the stop-chase point) is too away, i tell myself that it is
not the best time to start the chase (i.e. to take the trade). i wait. this is what i call
setting an "intelligent" stop loss (stop-loss chase point)

- after breaking my head for months and years against market theories, indicators and tactics, i
have realised that a trader's edge depends as much on deciding the stop-chase pole location as
much as on his or her ability to identify trading opportunities. the successful and profitable
trader may not necessarily be more intelligent or knowledgable, but definitely smarter in picking
the chase and stop-chase points.

- a time comes in a trader's professional journey when there is little scope of further improving
the skill of identifying credible, dependable and sure trading oppotunities in an
ever-treachorous operator-driven markets, the only way to become a still better trader is by
practicing and improving and mastering the art of chosing better and intelligent and clever
stop-chase pillars!

www.niftyshots.blogspot.com

learn fishing to be a successful trader

when i was in college
i often used to go for fishing
alongwith my friends...

we all had got
our handmade fishing rods

we would take along
a good supply of bait
to put in the hook
bit by bit
for luring the fish.

for quite a few times
it happened
that i put the bait
lowered the hook into the water
took it out after some time
only to see the bait gone
but no fish!

i felt so bad...

till one day
when the bait was gone
and a big fish had come!

since that day

i never mind
the disappearance of small baits!

because i knew
that on and off
some bait will get me a big fish!

with this one and only and simple trick
we caught so many fishes
in our college days!

bait
was our tiny investment
for
big rewards!

this experience
came handy
during my most difficult trading days!

when i trade
i take it as a fishing game!

i decide my entry point
and the stop loss
and i consider the difference between the two
as the bait!!!

that bait is meant to be fed to the fish
it is not a loss!

quite often
it gets me the fish
sometimes quite big!

this psychological trick
did wonders for me!

but remember
a bait is a bait
not full feast!

if you don't have a stop loss
or don't honour it
the sharks take away
the ship full of bait!

---

happy fishing!

the one who loses best, wins!

there are two ways to lose
lose smartly
lose losely

u lose smartly when u lose like a pilot whose jet goes out of control and he ejects safely.

the jet is lost but the human life and a highly trained elite pilot is saved!

u lose smartly when u pull the stop loss ejection trigger. the good thing is that even the principle jet is saved here as well as the trader pilot and his peace of mind!

on the other hand, u lose losely when u lose too late.

u lose losely when the writing is on the wall and the loss is most painful.

u lose not in the eleventh hour but 13th!

u accept the loss when u have no alibi or excuse left. when even your acceptance is no more graceful.

--

it is well known but hated secret

that good trade is never comfortable.

so, there is always a chance of loss!

so, this makes it more important as to how we lose!

--

the question is not who will be a millionaire

the question is who will stay a millionaire


so more important than winning is

preserving and building on the win.


there is only one way to ensure that

...lose smartly

and lose least!

--

that is perhaps the reason

why it is said that

trading is a losers' game!

the one who loses best, wins in the end!

a different kind of stop loss

there are three main reasons why traders don't use stop loss"

1. fear of booking the loss

2. expectation (sometimes proved right) that market will turn

3. loss of face that you were proved wrong

these are genuine factors

and it takes lot of time and effort

sweat, tears and blood

to tame these psycho-dogs!

--

i too had a lot of difficulty in overcoming these hounds.

then, one day

i found a unique psychological trick

which helped me trigger the stop loss

without even an iota of hesitation.

rather, i started loving pulling the stop loss trigger.....

here is it.....

--

whenever i find that i am on the wrong side of the trade

i don't bother to trigger the stop loss.

i just buy double the reverse position.

this may sound childish

but for me

this mental trick worked

just as penicillin worked on multiple infections

many decades ago!!!

--

it not only saves me from the mental tug of war

with my ego and emotions

it also works as a SAR (stop and reverse) for me.


i am always in the trade

and any loss is immediately overcome with profit.

tears are too small lived

they get wiped out by smile.



lately

i have further improved this trick as below:


i buy in current series (futures)

and sell in the next series.


i offset the booking of respective lots of respective series

by taking advantage of the zig zag motion of price within the channel.